Thursday 29 September 2016

Trendsetter: Old code of silence on pay prevails in the agri co-ops

Published 24/04/2016 | 02:30

Ornua CEO Kevin Lane and Saeed Bajwaber of Al Wazeen at the Ornua facility in Saudi Arabia
Ornua CEO Kevin Lane and Saeed Bajwaber of Al Wazeen at the Ornua facility in Saudi Arabia

Cats and cream, butter not melting in mouths - the puns around the rich and tasty Ornua executive salaries just roll off the tongue.

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For years, journalists attending the press conference for the Irish Dairy Board's annual results were treated to a free glass of milk for refreshment and promotional purposes. It was a nice tradition.

Having got a first glimpse of the salaries paid to senior executives at the company, now called Ornua, perhaps they should have been passing champagne around.

Ornua has responded to the upheaval about IFA salaries in the wrong way. It has decided to publish a collective remuneration figure for its entire nine-person executive team. This amounted to €9m over a two-year period or an average of €500,000 per year.

The board should have published a lot more detail. At the very least, it should have published the remuneration of the chief executive and then the total figure.

Ironically, if some of the nine-person executive team are earning less than €500,000 per year including pension - and I am sure they are - Ornua has given the clear impression that all nine executives are on a massive whack, which may not be the case.

The list of nine includes two executives who report to two divisional heads, who in turn report to the chief executive. I doubt they are earning €500,000 per year. It also includes the company secretary and head of human resources - two very important jobs but likely to pay below that average figure.

In its half-response to the call for greater transparency, the board has effectively caused a lot of hassle for every single member of the executive team.

Who is it trying to protect? One has to assume that the remuneration of the chief executive Kevin Lane is substantially higher than that of the company secretary and administrator or even two executives two levels below him.

The problems run much deeper throughout the agri-business world.

The board decides the pay - but the directors won't reveal their individual earnings from sitting on the board of Ornua, or from their day jobs as executives in several of the country's leading co-ops.

There is a code of silence across the agri-business sector about pay.

Ornua has fully complied with all of the rules - but this isn't about rules. It's about trust, openness and accountability.

Why quote the rules when you can go beyond the rules to achieve what farmers are looking for?

The company is owned by the co-ops, which in turn are owned by the farmers.

Unlike the IFA, Ornua is an international commercial business. Its senior executives may well warrant very high pay levels. But if they do, then let the levels be known and they can defend them.

It seems Ornua doesn't want to disclose pay levels in order to protect its commercial position. I can understand that. And there may be some merits to that view.

But why not disclose one pay level, namely the chief executive, and then round up the rest?

It seems the IFA farmer rebellion on pay is turning into a full-blown revolution. It looks like the co-ops will all have to jump together on pay disclosure and when they do, casualties could follow.

Irish Water is set to become the new HSE

It seems you would need some kind of degree in fluid dynamics to understand the new proposed pricing structure for Irish Water. The brave new compromise on water is a total mess.

Here are some simple figures around Irish water that everybody can understand. After making a mess of establishing Irish Water, the Government did a massive climbdown in December 2014.

After the charges revision, the official cost of water per 1,000 litres in Ireland would be €3.70. However, after allowances and the caps are included for a family of four using an average supply of water, it worked out at €0.89 for every 1,000 litres - or cubic metre - of water. This gave us the cheapest water charges in Europe, even lower than what they pay in Bulgaria.

The Irish water system needs to spend €5.5bn in the next five years on water infrastructure and a further €7.5bn after that.

Fianna Fail and Fine Gael have spent so much time debating the nuances of whether Irish Water would be a company, a utility, an agency or a quango built on top of a quango.

As a company, it was still on the books of the Irish State anyway. Turning it into an agency/utility is closer to theology than economic policy.

Under the compromise, Irish Water will be neither a biscuit nor a bar. As a state company, it could have ring-fenced its revenues towards meeting infrastructural investment costs.

Under the new deal, 40pc of households won't have to pay anything at all.

What will this arrangement do for Irish Water's revenues and the rate of compliance on charges? Six out of every 10 households will contribute the entire water charge, while 40pc don't pay a cent.

This complex fudge is a recipe for ensuring that in 10 years from now Ireland still has enormous water infrastructure difficulties. It also opens the way for Irish Water to be diluted and reversed back into a failed old system.

It is like abolishing regional health boards to create the HSE, only to want then to de-centralise again.

And by the way, Fianna Fail apparently came to the negotiating table with 29 policy points on supporting a government.

After days spent on re-inventing Irish Water, as of Friday morning, unresolved issues included the minor matters of crime, childcare, health and education.

The great bank rip-off of the SMEs continues

It was Groundhog Day with the publication of the National Competitiveness Council's (NCC) report on the cost of doing business in Ireland. Common themes among business costs relate to legal fees and the cost of borrowing money, especially for SMEs.

The report started in 2014 but wider reports about Ireland's competitiveness have been banging on about these issues for years. It isn't NCC's job to fix them, just to point it out, but nobody seems to be listening.

The report found the cost of credit continues to act as a drag on the enterprise sector, "inhibiting investment and growth, particularly amongst start-ups and SMEs".

It found that in November 2015 the interest rate charged by banks in Ireland on loans of up to €0.25m was more than 80pc above the euro area average rate for new business. The rate on loans of up to €1m was more than 60pc more expensive in Ireland.

The situation has actually got worse. Back in 2013, the report found that new business interest rates for non-financial corporations were 31pc higher here than in the euro area for loans up to €1m and 27pc higher for loans above €1m.

In those two years, forgetting about bank impairments and provisions, Bank of Ireland improved its net interest margin by 10pc and operating profits went from €1bn to €1.4bn.

Meanwhile, over at AIB, operating profits before provisions went from €464m to €1.3bn in the same period.

The great SME rip-off continues unabated and if anything it, is now accelerating as banks continue to cream it on business loans.

Sunday Indo Business

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